Pakistani Banks Posted Record Profits by Funding the State

KSE-100 listed banks earned Rs326 billion in the first half of 2025, their highest half-year profit on record. That was a 19% rise from a year earlier, or about $1.16 billion, in a note from Karachi brokerage Arif Habib Limited published on August 30, 2025. The second quarter supplied Rs160 billion of the total, up 23%.

Net interest income did the heavy lifting, at Rs1 trillion, up 22%, even as the State Bank of Pakistan held its policy rate at 11% after cutting it from a 22% peak. The quieter counterpart is who sat on the other side of that income: the government as borrower, and the treasury as tax collector.

Listed Banks Posted Rs326 Billion in Half-Year Profit

AHL’s universe of 13 KSE-100 banks booked a highest-ever half-year profit after tax of Rs326 billion. Pre-tax profit was Rs722 billion. Markup income stayed the engine: first-half net interest income reached Rs1 trillion, and the second quarter alone produced Rs510 billion, up 20% as asset volumes grew.

Non-markup income added Rs255 billion, up 7%, with Rs132 billion in the second quarter, up 9%, from fees, foreign-exchange gains and capital-market gains. Operating expenses rose 18% to Rs553 billion, yet the cost-to-income ratio only moved to 46% from 45.4% a year earlier.

United Bank Limited shows how the markup book paid. Its first-half net interest income jumped 205% to Rs175.4 billion, while non-interest income fell 19% because last year’s portfolio gains did not repeat. After-tax profit doubled to Rs64.7 billion. The same accounts booked Rs85.6 billion of tax.

UBL, Meezan and National Bank Took the Bulk

Three names produced Rs154.0 billion, or 47% of the listed pool. UBL led. Meezan Bank Limited followed. National Bank of Pakistan, the state-owned lender, came third on Rs42.7 billion, with deposits at a record Rs4.7 trillion.

1HCY25 PROFIT AFTER TAX BY BANK

Habib Bank Limited still held the largest deposit base, at Rs5.2 trillion, after adding Rs440 billion of current accounts and taking its current-account ratio to 40.5%. UBL posted the fastest deposit growth, 32% to Rs4.3 trillion. Eleven of the 13 listed banks hit record deposit levels. Bank Alfalah’s deposits reached Rs2.3 trillion, and it paid Rs5.0 a share, its highest first-half payout.

A Balance Sheet Tilted Toward the State

By the end of calendar 2025 the whole banking sector, not only the listed names, had leaned further into the fiscal account. The State Bank’s Financial Stability Review put total assets at Rs63.2 trillion, up 17.8%. Net investments in government securities and related paper were about 62 percent of that book, up from 55.5% in 2024.

THE STATE’S SHARE OF THE BANK BOOK

• Investments: Net investments reached Rs39,066 billion, and government securities made up 94.8% of the investment portfolio after a Rs9.2 trillion rise, versus Rs3.3 trillion in 2024.
• Loans: Net advances fell 6.0% to Rs14,857 billion after a 29.8% jump in 2024, when an advances-to-deposit tax rule had pushed banks to expand loans and slow deposits.
• Funding: Deposits rose 24.7%, or Rs7,868 billion, to Rs39,659 billion, well above the 10-year average of 13.3%, once that tax rule was withdrawn.
• Loan ratio: Advances over deposits ended 2025 at 37.5 percent, down from 49.7% in 2024 and 41.8% in 2023.

The central bank said the 2024 loan spike was a one-off response to the ADR-linked tax on income from government securities, and that after the rule was withdrawn from tax year 2025, early-2025 saw net loan retirements. Private credit did come back late: fourth-quarter advances rose Rs1.6 trillion, including Rs862 billion of private loans, SME advances rose Rs248 billion, and consumer financing rose 22.3% to Rs1,024 billion. The mix still left the sovereign as the main asset.

Banks used the falling-rate year to lock funds into longer paper, especially semi-annual floating Pakistan Investment Bonds, while the government used the same cycle to term out borrowing. Cheap current accounts, which AHL flagged as 43.3% of deposits by the first nine months of 2025, funded that trade. The loan book did not keep pace with deposits even after the extra ADR tax died, which is why the ratio slid into the mid-30s rather than recovering with the cycle.

How the 44% Bank Tax Recast the Profit Split

Listed banks sent Rs394 billion to the treasury in the first half, up 44%, as the effective tax rate rose to 54% from 48%. That is more than the Rs326 billion left for shareholders. The Income Tax (Amendment) Ordinance, 2024, raised the standard rate on banking companies to 44% for tax year 2025 from 39%, and scrapped the extra levy that had applied when lending to the government ran above a set threshold.

For the entire sector, the State Bank later put the tax charge on pre-tax profit at 54.3% for 2025, up from 52.9%. After-tax return on assets eased to 1.2% from 1.3%, and return on equity to 19.8% from 21.5%. Capital adequacy still rose to 20.8%, non-performing loans fell to 6.1%, and provisioning coverage reached 107.7%.

The balance sheet of the sector, however, continued to remain tilted towards investments (mostly government securities), which constitute around 62 percent of asset base in CY25 (55.5 percent in CY24), reflecting the government’s heavy reliance on banking sector for budgetary support in the backdrop of limited capital market, constrained access to external sources and low saving rate in the economy, while private sector’s credit demand remained moderate in the wake of improving economic conditions.

State Bank of Pakistan, Financial Stability Review 2025

The ordinance was the price of ending the ADR penalty. Banks could load government paper without that extra slab, and the state recast the take as a higher flat rate on all banking profit. UBL’s first-half tax bill of Rs85.6 billion is the listed extreme of that bargain.

A 70% Bank Rally Left the Benchmark Behind

AHL’s August 30 note said banking stocks had returned 70% year-to-date in 2025, against 27% for the KSE-100, a 43 percentage-point gap. NBP led with a 148% share-price rise, then UBL at 111% and Askari Bank at 105%. The brokerage tied the move to the profit print, asset quality, and surprise dividends.

PAYOUTS THAT LIFTED THE RALLY

• Bank of Punjab: First-ever interim dividend of Rs1 a share in the second quarter.
• Askari Bank: Rs2 a share, its first such payout since the second quarter of 2014.
• Full-year 2025 cash: MCB Bank paid Rs36 a share, NBP Rs35, UBL Rs29.5 and Meezan Rs28, in AHL’s later calendar-year tally.

Full-year listed profit came in at Rs671 billion, up 11%, with UBL at a record Rs130 billion, Meezan at Rs90.7 billion and NBP at Rs85 billion. NBP’s earnings rose 227% once a year-earlier pension charge dropped out of the base. HBL’s deposits were Rs5.5 trillion by year-end, UBL’s Rs5.1 trillion after 96% growth, and Meezan’s Rs3.3 trillion.

Islamic Banks Lost Ground After the Rate Cuts

Islamic books in AHL’s first-half sample earned Rs57 billion, down 13%. AHL blamed the decline in rates and a regulatory change that took effect in January 2025. Conventional banks in the same sample grew profits 29%.

The full-year Financial Stability Review still had Islamic banking institutions growing faster than conventional peers, to about 22.9% of sector assets, with assets up 30.7% and non-performing financing down to 2.4% from 3.5%. Their return on assets cooled to 1.8% from 2.8%, and return on equity to 24.7% from 36.0%. The first-half squeeze sat inside a larger franchise that was still taking share, just at thinner margins once benchmark rates fell.

The Loan Ratio Ended the Year at 37.5%

The policy rate peaked at 22% in June 2024. The Monetary Policy Committee cut 1,100 basis points to 11% by May 2025, then held that rate on June 16 and July 30, 2025. Over calendar 2025 it cut a further 250 basis points, taking the rate to 10.5% and 1,150 basis points below the peak. Interest expense on the sector book fell faster than interest earned, which is how net interest income still rose after the cuts.

SBP put after-tax profit of the banking sector at Rs716 billion for 2025, up 11.2% from Rs644 billion. That all-bank figure sits above AHL’s listed Rs671 billion because it includes unlisted lenders. Earnings indicators still cooled because lower policy rates passed into earning assets and because the corporate tax rate on banks rose.

FROM 22% RATES TO A THINNER LOAN BOOK

1. June 2024: Policy rate stands at 22%, the cycle peak.
2. May 2025: Cumulative cuts of 1,100 basis points take the rate to 11%.
3. June 30, 2025: Listed banks close a record first half at Rs326 billion after tax, with net interest income of Rs1 trillion.
4. July 30, 2025: The committee holds the rate at 11%.
5. December 2025: Sector assets reach Rs63.2 trillion, investments about 62% of the book, the loan-to-deposit ratio 37.5%, the policy rate 10.5%, listed profit Rs671 billion.
6. June 30, 2026: AHL’s listed sample records Rs341 billion of first-half profit, 4.6% above the year-earlier record.
7. July 2026: Sector deposits reach Rs40.8 trillion and the advances-to-deposit ratio is 35.4%.

AHL’s July 2026 pulse had deposits increased by 19.1% YoY to Rs40.8 trillion, advances up 9.0% to Rs14.5 trillion, and investments up 7.9% to Rs39.1 trillion. The advances-to-deposit ratio was 35.4%, and the investment-to-deposit ratio 95.6%. Investments still rivalled the entire deposit base.

Pakistan listed banks profitability – Pakistan Listed Banks record a profit of PKR 341bn in 1HCY26
Full Reporthttps://t.co/uJITkaJDRX#KSE100 #PSX #Equities #Pakistan #Banks pic.twitter.com/hAATtRtp8C

— Arif Habib Limited (@ArifHabibLtd) August 28, 2026

In August 2026, Governor Jameel Ahmad told a Karachi banking-awards audience that lenders should raise more retail deposits and put more weight on private-sector credit. The first-half 2026 profit print of Rs341 billion shows the listed sector is still earning. The July loan ratio shows it is still doing so with a book pointed at the state.

Frequently Asked Questions

What Tax Rate Do Pakistani Banks Pay on Profits?

The Income Tax (Amendment) Ordinance, 2024 set the rate on banking companies at 44% for tax year 2025, 43% for tax year 2026, and 42% from 2027 onward, while abolishing the extra levy of up to 15% that had applied to profits from lending to the government above a threshold. The first-half 2025 effective rate on listed banks was 54%, above the statutory 44%, because of the way taxable income is computed and because prior-year slabs still sat in some bills.

Why Did National Bank’s First-Half Profit Rise 61-Fold?

AHL recorded NBP’s first-half 2025 profit at Rs42.7 billion, calling it a 61-times year-on-year jump, after deposits hit Rs4.7 trillion. The comparison is inflated by a large one-off pension charge booked in 2024, which crushed the year-earlier base; for the full year AHL put NBP’s profit at Rs85 billion, up 227%, and again named the missing pension charge as the base effect alongside higher net interest income.

How Much of Bank Investments Are Government Securities?

Government securities were 94.8% of the banking sector’s investment portfolio at the end of 2025, after those holdings rose 32.9%, or Rs9.2 trillion, in a single year. That is a narrower slice than the 62% of total assets sitting in all investments, and it is why treasury paper, not private loans, dominates daily liquidity as well as earnings.

How Much Profit Did Listed Banks Make in the Second Half of 2025?

AHL’s listed sample earned Rs671 billion for calendar 2025, which leaves Rs345 billion in the second half after the Rs326 billion first-half print, so the two halves were almost even. UBL still led the year at Rs130 billion, with Meezan at Rs90.7 billion and NBP at Rs85 billion.

Disclaimer: This article is news reporting and analysis of published bank results, central-bank data and brokerage notes, and it is for information only. It is not investment advice, a solicitation to buy or sell any bank share, bond or deposit product, and it is not tax or legal advice. Readers should consult a licensed financial adviser, tax practitioner or lawyer in Pakistan before acting on any figure or payout mentioned here. Profit totals, tax rates, policy rates, stock returns and loan ratios reflect the named sources for the dates given and can change with later filings, auctions and Monetary Policy Committee decisions.